4 Types of Long-Term Incentive Plans

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There are three main LTI systems used in practice.

Form LTI dependent on price appreciation costa-rica mobile phone numbers database LTI depends on length of service Performance-based LTI Monetary reward
Content The reward depends on the growth of the company's value during the given period. The remuneration is paid upon working a specific amount of time in the company. Remuneration is 100% based on work results Pre-agreed monetary reward
Examples Options, SARs Restricted shares Performance-based shares Cash payment
Each of the above forms of LTI has both advantages and disadvantages:

LTI dependent on price appreciation
Advantages:

In case of dynamic growth of the company, employees can count on very large amounts of remuneration.

The flexibility of the system allows for the arbitrary determination of the time period after which employees can expect to receive remuneration.

Employees do not pay upfront to receive options that entitle them to compensation.

Flaws:

Employees who want to purchase stock options after the company's offering must pay a certain amount for them, which is significantly less than the market price at which they can subsequently sell their securities.

There is a risk that the company will not only fail to grow in value, but will also decline, and then there will be no point in talking about remuneration from profits.

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LTI depends on length of service
Advantages:

RSUs always have a positive value, meaning the risks to employees are less than when purchasing stock options.

The period of deferment may be arbitrarily established by the company's management.

Disadvantage: it is impossible to control the terms of payment to the Federal Tax Service, which is collected immediately after the acquisition of the right of ownership. Tax on stock options is charged only after their actual use.

Performance-based LTI
Advantages:

The reward is tied not only to the deadline, but also to the fulfillment of planned indicators. No achieved goals – no income.

Incentive plans

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Flaws:

If the goals are unachievable or too high, the staff may lose motivation. Why work hard if there will be no results anyway?